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Natural Gas Futures Surge as Forecasts Show ‘First Wave of Cooling Demand’ in East
Forecasts advertising hot temperatures for population centers in the eastern half of the Lower 48 later this month helped send natural gas futures sharply higher early Monday. The June Nymex contract was up 10.9 cents to $3.070/MMBtu at around 8:45 a.m. ET.
Over the weekend weather models trended “notably warmer” for late this week into next week, according to Bespoke Weather Services. There was enough heat to add 7 gas-weighted degree days to the firm’s latest 15-day forecast.
“The changes were focused mostly in the Midwest to East,” Bespoke said. “…This breaks the trend we had taken note of recently where models had been too warm in the medium range only to progress forward cooler.
“Having said that, we do still see projected angular momentum anomalies staying quite positive, but other components in the tropical forcing mix appear set up in a more favorable position for the hotter outcome this time, giving us our first wave of cooling demand in much of the eastern half of the nation,” the firm added.
With model runs over the weekend predicting “several days of hotter-than-normal mid-May weather,” recently range-bound natural gas futures could be ready to test resistance at $3.03, according to analysts at EBW Analytics Group.
“For nearly three weeks, the front end of the curve has been trading within a very narrow range, supported by increasing strength further down the curve — but held back by exceptionally weak near-term weather-related demand and prices at Henry Hub well below $3.00,” the EBW analysts said.
The upcoming bout of hotter temperatures is expected to impact the populated Northeast, but the heat is “only expected to last for a few days, and is likely to peak in the high 80s or low 90s in most locations,” according to the firm.
Still, “increasingly bullish” underlying supply/demand fundamentals could be enough to see the front month test resistance at $3.03, the EBW analysts said.
“Whether resistance breaks or gas prices hastily retreat will depend heavily on if the warm weather quickly fades,” according to EBW.
For its part, Bespoke said the sharp increase in prices as of early Monday “feels overdone.” The firm pointed to “what we feel is material loosening of supply/demand balances that should be reflected in the next few” Energy Information Administration (EIA) storage reports.
Looking ahead to this week’s EIA report, NGI’s model is calling for a 63 Bcf injection for the week ended May 14. Last year, EIA recorded an 84 Bcf build for the similar week, and the five-year average is an injection of 86 Bcf.
June crude oil futures were down 40 cents to $64.97/bbl at around 8:45 a.m. ET, while June RBOB gasoline was off fractionally to $2.1170/gal.
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